Historically, for an interest in a real estate, such as a deed of trust or mortgage, first in time equaled first in line – with or without recording.
Thus, if John mortgaged his property to Kevin and then John mortgaged his property to Larry, Kevin’s interest always prevailed over Larry’s, because Kevin was first in time. In modern times, that may not be true if Kevin fails to record his interest.
Purpose of Recordation – Notice
Today, in some form or another, every U.S. state requires some sort of recordation of an interest in real estate to give “notice to the world” of that interest in the real estate. This puts subsequent persons on notice of existing interests in the real estate. It is important to note that failure to record does not invalidate a deed of trust or mortgage. However, failure to record may cause the holder of that deed of trust or mortgage to lose out to a subsequent person who obtains an interest in the real estate. For example, if Kevin fails to record, his lien may end up being subordinate to Larry’s lien if Larry records first. Therefore, it is best to always record as quickly as possible to be certain that one’s lien priority is secure.
Requirements for Recordation
Many types of interests in real estate can be recorded including a deed of trust/mortgage, assignment of interest, a contract to convey, and really any kind of deed. Most recording statutes require that, to be recorded, the security instrument be signed or rather acknowledged by the owner/grantor of the real estate before a notary public. The purpose behind this is to protect against the risk of forgery or fraud.
Without acknowledgement or even proper acknowledgement – such as a signed deed but not in front of a notary public – from the owner/grantor, the person attempting to record their interest in real estate may have difficulty recording their interest in the real estate. Ultimately, each state and even county may have its own special requirements for recording.
The Recording Process
Typically, the person who holds this new interest in the real estate presents their deed to the county recorder. If a title company is hired to provide title insurance, the title company handles the recordation with the county recorder. Once the title company presents the deed to the county recorder, the county recorder will photograph the deed and file a copy in their records, which are kept in chronological order. The recorder indexes the interest in the real estate. Some counties index the real estate by location whereas others index using a chain of title to the real estate.
Effect of Recordation
As previously stated, recording one’s interest in the real estate provides notice of the existence of one’s interest and the contents of the recorded instrument. It also raises the presumption that one’s interest is valid. Although it is uncommon, it does happen that an interest in real estate is not properly recorded. If it is the recorder’s mistake, the person whose interest was harmed by not having their interest properly recorded likely has an action against the recorder’s office or their title company. If the interest in the real estate is not properly recorded, because the owner of the real estate fails to sign the security interest altogether, then there is no longer a presumption of notice to subsequent parties, meaning the lender could lose their security interest. On the other hand, if the security interest is signed but not notarized or is notarized before a disqualified notary, then most courts recognize this as giving presumptive notice to subsequent parties in interest.
Run a title search to find out what else has been recorded. Usually, this is handled by a title company. When the deal is done, record the interest in the real estate as quickly as possible. Be sure to record the right way meeting all of the recording requirements of the courthouse in the county where the real estate is located.
In conclusion, it is always best to retain a law firm with expertise in drafting recordable documents, when making a loan secured by an interest in real estate. They can ensure the document meets state and local requirements and provide advice issues like this.